Chapter 29 The thirteenth chapter conclusion.The relationship between propensity to increasing returns and propensity to diminishing returns

The first section is a summary of the following chapters of this part. At the beginning of this chapter we saw how, other things remaining the same, the increase in the harvest of agricultural produce produced by the increased employment of capital and labour, in nature, eventually tends to diminish.In the remaining chapters of this book—especially the last four—we have looked at the other side of the problem, seeing how human capacity to produce work increases with the amount of work that humans do.First, after considering the causes which govern the supply of labour, we know how, other things being equal, every increase in the physical, mental, and moral power of a people will render it more capable of rearing the most able-bodied children. grow up.Next, as regards increases in wealth, we see how every increase in wealth tends in many respects to make greater increases easier than before.Finally, we know how every increase in wealth, and every increase in population and in the intelligence of men, increases the facilities of a highly developed industrial organization, which in turn increases greatly the common efficiency of capital and labour.

After a more careful study of the economy arising from the increase in the scale of production of any kind of commodity, we know that it is of two kinds—one dependent upon the general development of industry, and the other dependent upon the employment of such goods. The resources of individual enterprises in industry and the efficiency of their management; that is to say, they are divided into two categories: external economics and internal economics. We know how, as regards any individual enterprise, the internal economy is liable to constant change.An able man, suddenly, perhaps by the aid of good fortune, having established a solid foundation in his trade, works hard and lives frugally, his own capital soon increases, enabling him to borrow The credit of more capital grows faster; the subordinates he recruits have more enthusiasm and ability than ordinary people; because his business expands, their status also rises with him, and they trust him, and he trusts them Each of them is fully engaged in the work for which he is specially suited, so that no higher talent is wasted in easy work, nor is difficult work entrusted to the unskilled.With the gradual increase of the economy of this art, the increase of his trade brought a similar economy of special machinery and equipment of all kinds; each improved method of manufacture was quickly adopted, and made a further The basis of improvement; success brings credit, and credit brings success; credit and success help to retain old customers and attract new ones; the increase of his business gives him great advantage in purchasing; his goods Promote each other; thereby reducing the difficulty of finding a market for the goods.The increase in the scale of his business rapidly increases his advantage over his competitors, and reduces the price at which he can sell his goods without loss.This will continue so long as his energy and enterprise, his originality and organization, remain in full strength and vigor, and as long as the inevitable risks of business do not cost him exceptionally; If the situation lasted a hundred years, he and one or two others like him could divide up the whole business of the branch of industry in which he ran.Their mass production would afford them a great economy; and if they endeavored to compete with each other, the public would obtain the chief benefits of this economy, and the prices of commodities would fall very low.

But here we have a lesson from the young trees in the forest, and from the struggle of the old trees in the shade.Many young trees died, and only a few survived; and these few surviving trees grew stronger every year, and each increase in their height received more sunlight and air, and finally towered above the neighboring trees. Above, it seems that they will grow like this forever, and as they grow like this, it seems that they will grow stronger forever.However, they are not.One tree lasts longer and flourishes more than another; but sooner or later age has its influence.The taller tree, which receives more sunlight and air than its competitors, gradually loses its vitality, giving way successively to other trees of lesser physical strength, but greater youthful vigor.

The growth of trees is like this, and the development of enterprises is also like this in principle before the great modern development of large joint-stock companies, and large joint-stock companies often do not go bankrupt in business, rather than collapse suddenly.Today, this principle is less common, but it is still valid in many industries and businesses.Nature suppresses private enterprise by limiting the lifespan of its founder, and even more strictly, that part of his life in which he can best develop his talents.So, before long, the management of business falls into the hands of men who, even with an equally active interest in the prosperity of the business, have less energy and creative genius.If the enterprise is organized as a joint-stock company, it retains its division of labor and its special technical and mechanical interests: it can even increase these interests if additional capital is added; maintain a permanent and prominent position.But it fears that it has lost so much of its flexibility and progressive power that it is no longer quite in a good position to compete with emerging smaller rivals.

So when we consider the wide-ranging consequences of the growth of wealth and population on productive economies, the general nature of our conclusions is not very much affected by the fact that, first, many of these economies are directly It depends on the size of the individual firms engaged in production; and secondly, that in almost every trade large firms are constantly rising and falling, and that at any given time some firms are flourishing and others are declining.For, in times of general prosperity, the decay of one side must be more than offset by the prosperity of the other. At the same time, an increase in the overall scale of production naturally increases an economy which does not directly depend on the size of individual enterprises.The most important of these economies arose from the development of related branches of industry, which helped each other and were perhaps concentrated in the same place, but in any case took advantage of the modern The transportation is convenient.Economies such as this originate from, are available to any branch of production, not entirely dependent on its own development: but these economies necessarily increase rapidly and steadily with its own development; If it fails, these economies in some ways—

Though not in all respects - necessarily shrinking. The second section of production costs should be explained with a representative enterprise, which can normally obtain the internal economy and external economy belonging to a certain total production volume.Constant and increasing returns. These results are of great importance when we study the causes which govern the supply price of a commodity.We must carefully analyze the normal costs of producing a commodity in relation to a given total quantity of production; and for this purpose we shall examine the costs of a representative producer under that total quantity of production.On the one hand, we do not choose to represent some new producer who has just thrown himself into business, who, operating under many unfavorable conditions, has to be content for a while with little or no profit, but who is content with the fact that ; he is establishing a business relationship, and is on the verge of establishing a successful business; on the other hand, let us not take for example a business which, by very persistent ability and good fortune, has had a great business and well-organized Great factories, and these big factories give it an advantage over all its competitors.But our representative firm must be one which has a considerable history and success, which is run by normal capacity, which normally acquires the external and internal economics which belong to that total production ; and the type of goods it produces, the sales of the goods, and the general economic environment also have to be considered.

Thus, a representative firm is, in a sense, an ordinary firm.However, the term "ordinary" in business has many different interpretations.And a representative firm is the ordinary firm of a special kind, which we need to study in order to understand how far the internal and external economies of mass production have generally reached in the industry and country in question.We cannot understand this if we study one or two businesses at random: but, after extensive investigation, choosing a business to study, whether We can see this quite clearly as far as we can judge that it represents this particular ordinary business.

The general thesis of this chapter shows the following two points: first, that an increase in the total production of any good generally increases the size of such a representative firm, and thus increases all its internal economies; second, that the total production An increase of the power of goods always increases the external economy which it receives, and thus enables it to manufacture goods at a proportionately less labor and cost than before. In other words, we can generalize: the role of nature in production exhibits a tendency to diminishing returns, while the role of man exhibits a tendency to increasing returns.The law of diminishing returns can be explained as follows: the increase of labor and capital generally leads to the improvement of organization, and the improvement of organization increases the efficiency of the use of labor and capital.

Increases of labor and capital, therefore, in those industries which are not engaged in the production of agricultural produce, generally increase their remuneration more than proportionately; large any resistance.If the effects of the law of increasing returns and the law of diminishing returns cancel each other out, we have the law of constant returns, and the increase in labor and sacrifice makes the product increase in exactly the same proportion. Because the two tendencies of increasing returns and diminishing returns are constantly suppressing each other.For instance, as regards the production of wheat and wool, the tendency to diminishing returns predominates almost entirely in ancient countries where imports are not freely available.If wheat is turned into flour, or wool into blankets, the increase in aggregate production brings some new economy, but not much; for the flour and blanket industries are already so large that their The new economies that can be obtained will probably be the result of new inventions rather than organizational improvements.In countries, however, where the carpet industry is only slightly developed, improvements in organization may be important; and it will then happen that the increased production of carpets reduces the difficulty of manufacture as much as it increases the raw material. The difficulties of production are exactly equal in proportion.In this case, the effects of the law of increasing returns and the law of diminishing returns will exactly cancel each other out;

The production of blankets would conform to the law of constant remuneration.But in most of the more refined branches of industry, where the cost of raw materials is insignificant, and in most modern transports, the law of increasing returns operates almost irresistibly. Increasing returns describe the relationship between the amount of effort and sacrifice on the one hand, and the amount of output on the other.These quantities cannot be correctly calculated because of the changed method of production, the need for machinery, and the need for new and different proportions of unskilled and skilled labor.On the whole, however, we may say vaguely that the quantity of production obtained by a given amount of labor and capital in industry has increased by a quarter or a third during the last twenty years.It is tempting and dangerous to measure costs and outputs in terms of money: for a comparison of money outlays and money receipts tends to turn into an estimate of the rate of return on capital.

Section 3 If the population increases, the common efficiency will generally increase with an excess proportion. We may now briefly summarize the relationship between industrial expansion and social welfare. Oftentimes unhealthy and debilitating habits of life in overcrowded cities follow rapid population growth.Sometimes the growth of population begins badly, it exceeds the material resources of the people, and makes them make excessive demands on the land with imperfect instruments; thus giving rise to the strong effect of the law of diminishing returns on agricultural products, without taking the law into account. Results narrowed down to the bare minimum capabilities.Thus, where poverty arose at the outset, the increase of population continued to have the very usual effect on that weakness of character, which is unfit for a nation to develop a well-organized industry. These are the serious dangers of population growth: but it is still true that the common efficiency of a people with a certain degree of individual power and energy may increase in proportion to the increase of their population.If they could import food and other agricultural produce on easy terms, temporarily avoid the pressure of the law of diminishing returns; If their habits of life are enfeebled, their power to acquire material goods increases momentarily in excess of proportion to every increase in their population.For the increase of population gives them access to specialized skills and specialized machinery, local industry, and many different economies of mass production: it enables them to increase every kind of convenience of communication; The time and effort of various transactions are thus reduced, and they are opened up to new opportunities of acquiring the comforts and luxuries of various forms of social enjoyment and cultural life.Doubtless the increasing difficulty of obtaining solitude and quiet, even fresh air, must also be taken into account: but, in most cases, the upside is greater.If we take into account the fact that an increase in population density generally brings new social enjoyments, we can expand the above statement a little and say: An increase would lead to a disproportionate increase in the total income of all kinds of enjoyment; but this requires two conditions: First, that an adequate supply of agricultural produce can be obtained without great difficulty; second, that overpopulation does not impair physical and moral strength for want of fresh air and sunshine, and for the health and pleasant recreation of the youth. . The accumulated wealth of civilized nations is now increasing more rapidly than the population; and it may be true that the wealth per person would increase somewhat more rapidly if the population did not increase so rapidly; Where there is an increase, a disproportionate increase in the material aid to production will continue to follow: now in England, because of the ease with which a large supply of raw materials can be obtained from foreign In addition to the needs of equality, there is a disproportionate increase in the means of satisfying human desires.The greater part of this increase, however, is due not to the increase in the efficiency of industry, but to the increase of wealth which accompanies the increase of population; and therefore the increase of population does not necessarily benefit those who have no share in the increase of wealth.Moreover, while the supply of England's agricultural produce from foreign sources may at any moment be hindered by a change in the foreign regulations of trade, or brought to the brink of extinction by a major war, the maritime The expense of the army, too, will obviously reduce the benefit which England derives from the operation of the law of increasing returns.